The Iran war’s economic threat to Europe and Asia

Sander Tordoir, chief economist at the Center for European Reform, a research institute, said Europe’s overall public finances are in good shape, but that a repeat of the level of relief that governments provided consumers and businesses in 2022 would raise troubling prospects. In the European Union, energy subsidies nearly doubled to 397 billion euros, or $457 billion, in 2022 from a year earlier. Over two years, the British government provided about 75 billion pounds ($100 billion) of support, including subsidizing household energy bills.

“If that’s the kind of order of magnitude that European countries will have to spend on this, it is doable, but painful,” Mr. Tordoir said.

...The British government has bound itself to strict fiscal rules to appease bond investors who are wary of the country’s high debt levels and low growth outlook. Britain’s bond yields tend to rise more sharply than those of its neighbors in a sell-off, driving up borrowing costs. Last year, the government was spending £1 in every £10 on debt interest payments. Now, just as the fiscal picture is starting to improve, the war in Iran risks derailing it. “The U.K. is especially vulnerable,” Mr. Tordoir said.